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Tuesday 07 September 2010
Author: Russell Group

The ability for merger and acquisition in the global reinsurance market has been impacted by the financial crisis and investors’ concerns over the ability of the sector to deliver decent returns.

Ratings firms Standard & Poor’s said in its global reinsurance sector outlook that the Bermuda class of 2005 had struggled to gain the size and scale that investors had hoped for and there was now evidence that private equity investors were turning away from the reinsurance sector as an investment opportunity.

S&P’s Rob Jones said: “The decision by Glacier Re to go into run off is a case in point where the investors thought they could get a better return via an orderly run off than the proceeds of a sale.”

He added: “There had been little M&A activity in recent times and in Bermuda we have seen the Max Capital Habor Point deal and the Partner Re Paris Re deal as there is a move towards a greater size and scale.”

He added the class of 2005 had not seen the success of the class of 2001 and as such it had hit investment appetite as private equity looked for an exit but could not find buyers willing to offer the right price. The softening market had also seen share buy backs by a number of reinsurers as they sought to manage capacity in the current market conditions.

Indeed the outlook while stable pointed to a challenging time for the reinsurerswith over capacity and downwards pressure on rates coming at a time when the first half of the year had seen several major loss events.

"Catastrophe losses during the first half of 2010 were at a 10-year high, but capacity remained abundant, allowing an acceleration of the erosion of underwriting margins," said Standard & Poor's credit analyst Mark Coleman. "After the shocks of 2008, the industry rebuilt its capacity and confidence during 2009. But the first six months of 2010 have seen insured catastrophe losses that have reportedly exceeded $20 billion, equivalent to the losses incurred during the whole of 2009."

Standard & Poor's estimates that more than half of the reinsurance sector's annual catastrophe budget had already been eroded before the onset of the U.S. hurricane season, and most weather forecasters predict above-average storm activity in 2010.